Your Will could end up costing your family a fortune!

When you hear Estate Planning, you may think it only applies to the rich or the lottery winners. However, anyone who has an estate, including life policies and retirement annuities, of between R3m and R15m stands to benefit a lot from Estate Planning.

To emphasise the kind of saving you can make, we have listed a mere seven of the many examples of savings we at Pagdens have made, or are able to make for clients. The savings are not necessarily only on your death, but can also be savings for the whole family in the years after your death.

A family saved R600,000.00!

• Mrs A, who was terminally ill, wanted to leave her living annuity of R1,5m to her son who was in the 40% income tax bracket and had two young children. It was suggested that she leave the funds to her grandchildren instead of to her son and she agreed that they would benefit most from the funds. On her death, her son would draw the funds monthly on behalf of his children for their benefit. Accordingly, instead of Mrs A's son paying tax of R600 000 over the next few years as the money is drawn out, the grandchildren would pay no tax thereby saving the family R600 000 of the initial R1,5m left to the family.

A wife saved R3.74million!

• Mrs B who inherited R5m from her husband and had R2m of her own, would be facing a substantial estate duty problem on her death. This would occur even though a testamentary trust had been created by her late husband. Various options were suggested to her including a trust, donations and interest free loans. The outcome would result in her being liable for no estate duty and very little capital gains tax compared to the possible R1,8m in capital gains tax and R1.74m estate duty she would have been liable for in ten years' time if her assets doubled in value and had she had not planned correctly.

A family saved R1.3million!

• Mrs C‘s son inherited a farm worth R10m but it was subject to his ninety year old grandmother’s usufruct (right to live in the property). A few weeks before she passed away, it was suggested that the grandmother "sell" her usufruct to her grandson, which she was happy to do. This saved the family almost R1,3m in estate duty. It also increased the grandson’s base value of the farm for capital gains tax purposes should he ever sell the farm.

A family saved R3.44million!

• Mr D died and left his shares in his business to his son. The shares were worth R10m. His divorced son was nearing retirement, had substantial assets of his own, and was concerned about his own possible future estate duty and capital gains tax problems. The son was advised to repudiate (not accept) his inheritance thereby ensuring that, if he died in ten years' time, and his assets had doubled in value, his family would save R3,44m in capital gains tax and estate duty and by repudiating, the shares went to his children.

A father saved R60,000.00 per year!

• Mr E, with a marginal tax rate of 40%, had a special needs major child whom he supported with his after-tax income. His child's costs came to about R100 000 per annum. This meant that he had to earn R100 000 after tax. However, by creating a special trust and moving funds to the trust he could save R60 000 per year.

A family saved R5.1million!

• Mr F‘s will left R5m of his assets to a trust with income to be paid to his wife and on her death the capital was to go to three trusts for his children. This not only created the usufruct problem referred to in Mrs C's example, but, also created a further problem in that when capital moves from one trust to another, the capital gains tax rate is 36% and not 18%. Various solutions, prior to death, could have eliminated most of the costs but, as Mr F had already passed away, repudiation of the inheritance by the trust would give the best result as his wife did not need the income. Assuming the assets would have doubled in value by the time Mrs F passed away, savings of capital gains tax and estate duty less initial estate duty of R300 000.00 in Mr F's estate would exceed R5,1m.  

A son saved R67500.00 per year!

• Mr G in his will left his townhouse worth R2m from which he earned R150 000 per annum in rental to his son who paid the maximum marginal tax rate of 45%. The son had two minor children. As the will stood, Mr G’s son would have had to pay R67 500 in tax every year. A testamentary trust was created with the family as beneficiaries. Mr G’s son could thus now distribute the income to his children without having to pay tax, saving R67 500 per annum on a mere R2m asset.

All of these savings were made because the family asked the right person with the right experience to consider how best to plan their estate or wind up the estate of their loved one.

Although everyone’s circumstances are unique and some families require more planning than others, expert knowledge could make a big difference to your family! A 'standard' online will may seem simple and convenient but without the correct advice, it could cost your family a fortune.

Contact Pagdens to arrange an appointment with one of our attorneys so that you can make sure that you have the correct plan in place and rest knowing your family has been well looked after.

At Pagdens, we have vast experience in winding up estates and two attorneys in our team have completed advanced courses in Estate Planning. For the month of September we are offering you a free consultation with an experienced estate planner to consider your unique circumstances and advise you on the best way to approach your Will and Estate Plan.

Contact us at 041 5027200 or email nicole@pagdens.co.za for more information. Your family will thank you!

This article is for general information should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact an attorney for specific and detailed advice. Errors and omissions excepted (E&OE)

This article was paid for by Pagdens